BP’s Christmas ruined as Turkey is delayed

Article 13 Jan 2006 admin

Safety failures delay the opening of BP’s BTC pipeline by a year – This report was first published in Platform’s carbon web newsletter, issue 3.

BP’s reputation faces a battering as completion of its flagship Baku-Tbilisi-Ceyhan pipeline (BTC) has been delayed by more than a year. The pipeline will not come on stream before April, due to the faulty construction work of BOTAS, the Turkish national pipelines company. Despite whistle-blowers’ warnings about BOTAS’ dangerous and inadequate construction practices, first brought to public attention by PLATFORM eighteen months ago, BP and the BTC lenders continued to claim that safety standards were being adhered to and the completion schedule would be met. The current and predicted delays will leave BOTAS (and hence the Turkish state) liable for over $150 million in fines to BP.

The project, stretching from the Caspian Sea to the Turkish Mediterranean coast, was originally due for completion in May 2005. BP has been forced to postpone the completion date to spring/summer 2006 for safety checks and repairs.  BP originally tried to sell the delay as a deliberate and responsible choice, saying that: “Very scrupulous tests are carried out to reduce the risk of accidents.” However by mid-December, David Woodward, Chief Executive of BP Azerbaijan, put the blame squarely on BOTAS and their construction errors in Turkey.

The same day, a senior BTC Co. executive announced that planned capacity expansion was suspended in a bid to speed up the overall project. “Workers and equipment will be moved from these [pumping] stations to other sites, as the two existing stations will be enough for first volumes of crude.”

As early as May 2004, exBOTAS contractors leaked information about the poor state of construction work. PLATFORM spoke to more than ten engineering specialists who had worked on the project, who cited falsification of records, the application of incorrect materials, inadequate safety precautions and suppression of internal concerns amongst other problems. Whistleblowers described BOTAS as “out of control”, with BP unable or unwilling to push BOTAS to comply with international standards, preferring to prioritise its economic interest in having the project delivered on time.

The project contracts incentivised a focus on cost-cutting and speed, not quality. BP pushed for a cut-price construction contract by the state-owned BOTAS; analysts estimated the bid was at least $600m below the real cost. If BOTAS did not complete the Turkish section by its deadline of May 2005, it would be liable for heavy penalty fines. As a result, corners were cut. As the project fell behind schedule, standards were deprioritised. Despite BP’s awareness of safety and environmental risks caused by rushed construction work, they reiterated that they expected “the BOTAS construction techniques and testing regimes will ensure that the pipeline will be laid safely and that it will operate safely.” Lenders including the British Export Credit Guarantee Department accepted BP’s assurances and stood by their own belief that BTC remained “on time and on budget for completion in 2005.”

Although BP shares responsibility for the delays by creating the incentive for rushed construction, BP executive David Woodward has been reminding BOTAS of their legal requirement to pay $500,000 per day in “liquidated damages” to the BTC consortium. By late March BOTAS will owe BTC Co. over $150 million. While considerable delays are likely to spark a financial wrangle between the BTC consortium and BOTAS, most heavily affected by the overrun are farmers who will lose another harvest to the pipeline. Turkish farmers living along the construction route struggle to scrape a living from their land in the best years, but those who have lost access to their land due to construction received a derisory one-off payment for crops not grown. BP and the project lenders ignored repeated warnings about risks created by the contract structure and specific failings by BOTAS to adhere to construction standards at a time when they could have been rectified. Now BP are trying to apply a sticking plaster to the problems, at the cost of the Turkish taxpayer and people along the route. The prospects for a safe pipeline are not good.

Focus Areas